EPMEPM: BD & Growth

Professional Investors – Are You Ready For a New Type of Client?

It is widely recognised that property management is changing, particularly with respect to how investors are now viewing their property assets. Story by Jan Malmstrom.

Our industry has recognised for some time that the vast majority of tenants now choose to rent.This is the complete reverse of the situation of not too many years ago when the rental population was made up of people who simply had to rent – they were unable to put a deposit together or they didn’t have the capacity to meet mortgage repayments, they had no other choice.We now have a younger generation of tenants who are much more mobile and transient.They don’t commit to buying a home, as they do not always see themselves as being permanent for too long in any one location.

They move on every two or three years, according to their industry or profession, and renting a place to live makes the moving on process so much easier.This new generation of tenantsconsider home ownership very differently; it is not high on their list of priorities.

However, their lifestyle is definitely a priority, and with the quality and variety of housing generally available, it is now possible to ‘rent a lifestyle’.This is one of a number of reasons that have an influence on why people choose to rent.

As well, the newgeneration of tenant is a much more informed tenant than previously – as most good property managers know – they also become investment property owners and landlords!

Just as the attitude to tenancy has changed – the same could be saidon the investment side, specifically the new generation of landlords.

Our oldest generation, ‘the builders’, rarely considered buying investment property. Their priority was the family home, and the security of owning their family home was their main goal in life.

The next generation, the ‘baby boomers’, looked at things quite differently and they very quickly became investment property owners – ourcurrent landlords.Certainly, a percentage of baby boomers consider the share market to be their wealth creation path, but anothergood percentage of baby boomer investors look at property as the safest way to prepare for their retirement.These ‘mum and dad’ investors had a different view to their parents on the type of lifestyle they wanted and definitelya different view of what their retirement should be!

They looked at property as the solution for their needs and wants and a number of baby boomers would still have concerns in relation to the share market. Most need to see, feel and touch their investments, and have faith that their property asset will provide an appropriate return plus long term capital growth.

However, while the industry still depends on the mum and dad investor to cater to the needs of the renting community, a new breed of investor has entered the market over recent years.

We now have what could be called, the ‘professional investor’, theystill look at residential property as the perfect vehicle for wealth creation but from a vastly different perspective.It is not uncommon for the professional investor to have in excess of 50 properties in their portfolio – this is certainly big business.As a result, it’s changing the way we work with investors and while it doesn’t change the way we manage property, it certainly changes the way we communicate and service our clients. These investors live in a commercial world, so the way we work with them must adapt to their specific commercial needs. For example, being conscious of their shortage of time, they want things to happen yesterday, they rightly expect immediate response to any request they may have, and they usually appreciate statistics, graphs and the like – anything that will easily and visually demonstrate where the investments currently sit. They expect exceptional customer service as investing in property is their core business – anything less could mean that you will lose them very quickly!

The professional investor is responsible for the development of a very different business model, which effectively caters to those investing in residential property as an occupation or serious wealth creation.

There has always been a need for a mortgage broker; a financial planner; a property developer; a property advisory service; and most definitely a property manager!Traditionally the property investor has dealt with different people in a number of companies,covering all these items,to help them achieve their goals, because that is the only way they’ve been able to obtain the product or service they needed.This has meant that sometimes this is a time-consuming and frustrating exercise.

Some forward thinking companies recognised this need very early,and engaged experts in every one of these fields in order to service their clients properly.There has been a shift to createa one-stop property investment shop, changing the way companies do business in order to cater to the special needs of the professional investor.

The professional investor naturally has different needs to the traditional one-off investor, this may meana property manager is dealing with a syndicate or a superannuation fund and these entities have a very specific focus.The professional investor – be it a super fund, a syndicate, or a serious individual investor –responds well if finance, planning, location, construction and subsequently the management of the investment is organised for them with the least amount of trouble.The ‘one-stop’ option is much simpler than spending valuable time running between the developer and property manager, for example.

Perhaps this concept could be compared with an investor’s dealings with the share-broker.The share-broker looks at the financial position of their investor; develops a plan for their financial future; sources the best ‘location’ in the share market; and ongoing management of the investor’s portfolio.

This is no different to what is now happening with real estate investment, the professional investor has necessarily changed the way we look at creating investment opportunities.As a result, management opportunities should also be created.

Property management departments that deal with professional investors must obviously have a totally professional,but quite a different approach to the way the properties are managed.While the everyday tasks of property managements must be dealt with according to legislation and with best practice in mind, management of the asset could include budget preparation for the short, medium and long term; ongoing review of rental returns; income projections; refurbishment/renovation as a matter of course and they could require more specific reporting processes.

In short, the professional investor may not ‘sweat the small stuff’ – but would definitely require a more holistic approach to how their investment is managed, which could include all of the items mentioned above.Perhaps this is a welcome change from those investment property owners who certainly do ‘sweat the small stuff’ – particularly in relation to anything that involves spending money!

The concept of the professional investor is not something that happened overnight, it has been evolving for quite some time.Those who recognise that the professional investor has very specific needs and expectations will benefit from this exciting new concept in managing investment property.The important thing is to develop the business model that will cope with the professional investor at the level they expect – from the very start of their financial planning through to the final stage – management of the investment.

Those of us who have been in the industry for some time will have seen the evolution of property management over the last number of years.We have all managed property for the mum and dad investors and been grateful for that opportunity.Those mums and dads will undoubtedly continue to provide the solid base for most property management departments.

However, unless the property management industry recognises that we are entering a new era of investing, agencies could be left behind.Industry sources advise that the percentage of people who choose to rent where they live, will certainly double in the next 10-20 years, if not more.The generations coming through have a different attitude to how and where they live and work.They are not as focussed on owning where they live, but they are focussed on planning for their future and one of the ways they will do that will be through professional investing.

As property managers,we will have different levels of responsibilities that may well mean we will need a different level of qualification and knowledge.Good property managers have become a valuable and highly sought after ‘commodity’ in recent years.Those who are proficient enough to properly service the professional investor will become an even more valuable commodity in the not too distant future.

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Jan Malmstrom

Jan Malmstrom has had 35 years in the real estate industry, always with a specific interest in property management. Jan is currently Head of Property Management at Investors Direct. For more information visit: idfg.com.au